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October 9, 2005
A Recipe for Disaster? What Will Happen to HOA Elections in California?
Leaving legislation to legislators - sounds reasonable, but it can be a problem sometimes. Legislators often do not have to survive in the real worlds that they create. I have served on a legislative action committee in California for more than 15 years that monitors and proposes legislation, but the last 5 years have been about defensive measures rather than proactive work - involving educating (or trying to) Legislators in California about real world practical issues that come up when the lawmakers try to micromanage from the halls of Sacramento. The group I serve with finds itself continually battling legislators over poorly drafted legislation, proposing cleanup legislation following each legislative session, providing educational information and provocative questions to legislators every single legislative session to help them understand the negative ramifications of bills that ignore practical everyday application problems. And as for those bills that are workable, touted to be "pro-consumer legislation" - the costs to consumers in this state are dear. If you live in a homeowners association, I do not have to tell you this. The costs are ever rising with new legislative requirements added every year. The law governing homeowner associations has become so complicated that every Board needs professional help to get through the annual disclosure requirements unscathed, and now I could say the same about elections. The latest? SB 61. If you want to see this bill, go to the California State web site, Senate area, at http:://www.sen.ca.gov. Click on legislation, put in the bill number, and click on the bill that deals with common interest developments. At first glance, this bill appears simply to provide a laundry list of elections requirements. It proposes a means of dealing with proxies and a means for secret ballot elections via a double-envelope secret balloting system. One can read the statute and completely miss the true impact. What appears to have happened that with this bill is that the legislator who proposed it, and each and every legislator in California who approved it (which is most of them), and the Governor who signed it, could not perceive the various practical problems it presents for homeowner associations in this state, in spite of many communications from the legislative group I work with, and others who understand how HOAs operate.
The bill attempts to combine the secret balloting system for public elections that involves a polling place, an unsigned or absentee ballot, independent accounting of ballots, and an election announcement in a public forum with a corporate election process calling for an annual meeting, proxies, voting at a meeting by members present in person or by proxy, quorum requirement for a valid meeting, cumulative voting, nominations from the floor, counting of ballots at a meeting, and announcement at the meeting. Sounds good -- but mixing up the two raises some difficult hurdles. SB 61 requires that proxies that are prepared must contain a separate page for the proxy giver to indicate to the proxy holder instructions on how to vote at the meeting at which the proxy would be used. By the way, a proxy is a legal document that allows one person to go to a meeting and exercise a member's vote because that other person is not able to attend. Use of proxies is a way to give homeowners in a homeowner association a “presence” at a meeting and help establish a legal “quorum” which is the minimum number of owners that must be "rep-”presented” in person or by proxy for the meeting to be a legally valid meeting.
A double envelope voting system involves sending out two envelopes and ballot, and requires a member voting by this method to place an unsigned ballot in one of the envelopes with a control numbering or other system -- and placing that envelope inside the second envelope which is addressed to an inspector of election or dropped in a ballot box. This allows an owner to vote secretly. The ballot box could be in an inspector's office, in the office of the association, and/or brought to a meeting.
Sounds simple enough. But trying to use both methods in the same election can be quite confusing. For certain subjects, the double envelope voting system is required. If the Board sends out the ballot and two envelopes and the proxy with the page attached that allows the member to note how he or she wants a proxy holder to vote, the Board will of course have to explain the two different methods of voting. If it proceeds without sending a proxy along with the ballot and envelopes to avoid confusion, it could backfire. Any association member that wants to exercise the right to cumulative voting, and/or brings a bunch of legally valid proxies to a meeting to be counted (assuming the governing documents allow for cumulative voting and allow proxies) has legal standing to ask that the proxies be validated. This raises a dilemma. If an owner sent in a ballot and then gave a proxy to someone to vote it, a potential legal issue arises as to whether the proxy can be used. Under California law, a person can revoke a proxy by appearing at a meeting, but can they revoke the ballot that was sent to the Inspector? Under current corporate law, a written mailed ballot cannot be revoked. However, what if the member is holding many proxies and wants to cumulate their votes? Unless the cumulative voting process is explained in the package of voting materials, (which would be appropriate only in an instance where the governing documents for the Association provided for it), then those who have already voted for candidates on the ballot by sending in the unsigned ballot have no way to go back and cumulate their votes. (This would normally resolve itself if the member gave a proxy because the proxyholder could have the opportunity to cumulate votes at the meeting after it was announced.)
This is a big deal. SB 61 requires secret ballots in any election in an HOA for board members, special assessments, amendments to the governing documents, or transfer of common area. This encompasses most of the elections in an HOA. The secret voting process requires the mail ballot double envelope balloting system which is the type used for absentee balloting and voting at polls in a public election.
And try to picture a recall election which can involve two elections on the same night - one to see if a board or board member is recalled, and the other to elect successor(s) if a board or board member is recalled. These are already complicated enough but the proxy system at least allows the attendee put in charge of voting to vote at both elections (if there are in fact two). The double envelope system would not work in a recall election, as it would leave any Association whose board was voted out of office without a viable way to proceed to the next election - unless the Inspector(s) of Election were appointed to conduct the second election as well.
The system proposed by SB 61 does not appropriately address cumulative voting and for all intents and purposes it complicates the use of proxies .... Thoughtful practitioners have for years explained to Boards why they do not want to try and combine a written ballot and voting at a meeting using proxies, and the confusion that would result. Now, it looks like it may be what is required, rather than what is to be avoided.
The real question is when and where will this be sorted out – at a meeting? or in the courts? And who will decide – an Inspector of Election? Or a Judge? I don't think any of the proponents thought this far ahead, but arguments about the practical problems encompassed in the processes legislated went unheeded the entire legislative session. Once this bill kicks in as law (after July 1, 2006) all a dissatisfied owner must do to challenge an election is file court petition for immediate relief. An owner who does not seek legal counsel and tries this process on their own will only complicate the court proceedings and draw things out to the point where an Association will have to pay considerable attorneys fees, and although the owner can recover legal fees if they prevail (if they use an attorney), the Association cannot recover legal fees unless the court finds the action to be frivolous. I believe this is a finding that will be the exception, rather than the norm, having (in my court days) experienced that judges often bend over backwards to help a pro per party (one that is representing himself or herself).
And what about costs. Costs for a complicated mailing, costs for an Inspector or Inspectors of election, costs for a redo when something in the process gets challenged.
It's an important issue - stay tuned.
Posted by Beth Grimm at October 9, 2005 8:48 PM